Buy Route Mobile; target of Rs 1100: Emkay

Emkay's research report on Route Mobile

Route Mobile posted a mixed operating performance in Q1 – revenue missed expectations, while margin came ahead of estimates. Revenue declined 10.6%/4.8% QoQ/YoY, below our estimates. The management attributed the weak revenue growth performance mainly to 4 factors. a) A large digital native client structurally shifted to sourcing directly from MNOs in one country. b) Decline in volumes from CPaaS aggregators. c) Termination of certain low-margin customer contracts. d) Realization pressure in domestic volume. Billable transactions were flat QoQ, albeit grew 5.9% YoY, whereas average realization declined 10.6%/10.1% QoQ/YoY to ~27paise. EBITDAM expanded by 80bps QoQ on the back of the 210bps expansion in gross margin, which was though partially offset by the rise in employee costs due to salary hike. Forex loss of Rs247mn caused a miss on reported profit in Q1. The management refrained from providing specific revenue growth/margin guidance for FY26, considering the continued softness in the A2P SMS segment, customer shift to alternate channels, and macro uncertainty; however, it intends to defend gross margins at the current level and deliver sustainable profitable growth over the medium term.

Outlook

We cut FY26-28E EPS by 10-15%, factoring in the Q1 performance and persisting pressure on A2P SMS volume. We retain BUY, while cutting our TP by 12% to Rs1,100 (from Rs1,250 earlier) at 18x Jun-27E EPS.